Farrell was born Theresa Lee Farrell in Cedar Rapids, Iowa, the daughter of Kay Carol Christine Bendickson and Edwin Francis Farrell, Jr. Later, her mother married David W. Grussendorf, who adopted Terry and her sister, Christine. Before becoming a model, she played a Christmas elf at a mall in Cedar Rapids. In 1978, at age fifteen, she left her hometown for a summer in Mexico City as a foreign exchange student. That time in her life made her fond of big cities, so in her junior year of high school, the nearly six feet tall Farrell submitted her image to the Elite modeling agency in New York City. Shortly after, at the age of sixteen, she was summoned to NYC and, within two days of arriving, had an exclusive contract with Mademoiselle magazine.